At eurozone meeting, ministers find unity only in rejecting Geithner
At a meeting of European finance ministers in Poland, leaders largely rejected proposals from Treasury Secretary Timothy Geithner on how to rescue the ailing eurozone.
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“Looking at the overall debt situation in the eurozone, it should be manageable,” Mr. Randolph says. “But there are so many governments with differing agendas involved, it’s proving to be quite a challenge.”Skip to next paragraph
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Consensus seemed to exist in the rejection of Geithner’s proposals. “We don’t see any scope for a new fiscal stimulus package within the eurozone,” said Eurogroup chief Jean-Claude Juncker. And Geithner’s demand the European rescue fund should be increased beyond its current size of 440 billion euros ($606 billion) was dismissed by German Finance Minister Wolfgang Schäuble saying European taxpayers were unlikely to agree.
There was no official statement on the possibility of a Greek default, instead the meeting postponed a decision on when to issue the next tranche of 8 billion euros ($11 billion) bailout money to the Greek government until October. Experts say that Athens has funds to keep the state going for another month only.
One thing the EU finance ministers did agree on was a stricter stability pact. The current pact imposes limits on budget deficits and public debt level of member states, but few countries have been following those rules. In the future there will be fines for such cases.
“This is too little,” says Lans Bovenberg from the Tilburg School of Economics in the Netherlands. “Even a stricter stability pact will be difficult to enforce. What I do hope they have been doing behind closed doors is working on Plan B – how to handle a Greek default.”
Professor Bovenberg, and many other analysts, say a Greek sovereign default is inevitable, and can be managed and contained as long as the necessary mechanisms are in place.
“Mr. Geithner is right to ask for a bigger European rescue fund,” says Bovenberg. “As soon as financial markets know that other European economies can be supported through the rescue fund, the risk of contagion by a Greek default is minimized.”
On Thursday, leading banks in the EU, US, Britain, Japan, and Switzerland agreed to provide US dollars to the European banking system, taking pressure off banks, which found it hard to find lenders due to the amount of Greek debt they are holding. This move, and the expectation of positive signals coming out of today’s meeting in Poland, caused global markets to pick up Thursday and Friday.